November 8, 2010 / 11:24 AM / 9 years ago

Online brokers boost trade in ETFs: BlackRock

TEL AVIV (Reuters) - Online brokers such as Charles Schwab Corp, Fidelity Investments and TD Ameritrade Holding are using low cost exchange-traded funds (ETFs) to attract new customers to their trading platform, a managing director at BlackRock said.

A generic picture of a woman working in an office sitting at her desk typing on a computer. REUTERS/Catherine Benson CRB

“ETFs are an area of increasing focus in the U.S. and globally,” said Deborah Fuhr, global head of ETF trading at BlackRock, the world’s biggest money manager.

“The goal is for people to come to the platform,” Fuhr told Reuters in an interview in Tel Aviv.

BlackRock last year bought Barclays Global Investors for $13.5 billion, mainly for its iShares ETF business, which is the world’s largest ETF with a 45 percent market share.

Charles Schwab has begun offering no-commission trading in their own ETFS, Fidelity offers commission-free online trading on 25 iShares products and TD Ameritrade recently began offering no-commission trading on various ETFs, Fuhr said.

U.S. brokers have reported that the promotions they are running have led to a sharp rise in their use, she said.

“In the U.S., the retail segment accounts for about 40 percent of the overall trade in ETFs,” Fuhr said, adding that trading volume and investment in ETFs through online brokers has doubled over the past three to five years. The same growth rate is expected over the next three to five years as well.

Though online brokers do not charge commissions for their sales in ETFs, they hope new clients will also trade in stocks and use other services they offer such as rolling over their Individual Retirement Accounts (IRAs).

IRA INVESTMENT

Investing IRAs in ETFs is another segment that is new and is expected to grow significantly, Fuhr said.

Global assets invested in 2,379 ETF products increased by 14 percent in the first nine months of 2010 to $1.2 trillion, compared with a 0.9 percent rise in the MSCI World Index.

Fuhr said she expects the ETF growth rate to reach 20-30 percent by the end of the year.

“We tend to find that many people will invest at the end of the year in ETFs, some will be for a tax trade and some will be that they don’t want to be out of the market at the end of the year,” Fuhr said.

“What you find is that in times of volatility people find that using ETFs is the easiest way to invest.”

In contrast to ETF net inflows of $81.6 billion in the first seven months of 2010, mutual funds had net outflows of $221 billion.

Fuhr forecast that ETF assets will continue to grow by 20-30 percent next year.

While ETFs operate in a similar manner to index funds, their costs are lower and they have extra features, such as allowing investors to “get in and out during the day and trade with multiple brokers,” Fuhr said.

Online brokers in London have also found that offering ETFs has brought them new clients and Fuhr said a number of firms have been launched to provide advice on how to run ETFs.

“Many of these firms have been launched by people who had been historically successful active managers,” Fuhr said.

Significant new assets are also flowing into fixed income and commodities ETFs, especially in gold and silver as people look for safety rather than appreciation, she said.

Reporting by Tova Cohen; Editing by Louise Heavens

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